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Weak demand and higher payroll costs have led to the steepest decline in service sector jobs since January 2021, according to a new survey.
Nearly a quarter of survey respondents reported a fall in workforce levels, while 12 per cent signalled a rise, data from the S&P Global UK Services PMI showed.
“Service providers widely commented on concerns about cutbacks to business and consumer spending, alongside the impact of rising employers’ National Insurance contributions,” the report said.
Overall, S&P Global’s services index PMI came in at 51.1, revised down from 51.4.
The news comes following a Bank of England survey in December that found that more than half of companies were planning to raise prices in response to the Budget while cutting jobs and pay.
Meanwhile, the latest report on jobs from KPMG showed that salary growth reached its slowest pace since December 2021, as a rise in redundancies and low demand for workers squeezed private sector pay.
In its inaugural Autumn budget, the Government increased employers’ national insurance contributions – a tax on employees’ wages paid by their employer – by 1.2 per cent to 15 per cent.
Many businesses have slammed the move, calling it a “significant burden”, particularly for those in labour-intensive services like hospitality.
‘Labour were warned’
The survey will add to fears that the government’s first Budget has hit economic momentum.
Growth has ground to a standstill since the summer, while consumer and corporate confidence has also fallen sharply.
Shadow Secretary of State for Business and Trade, Andrew Griffith, said the survey results were the “heavy price of [Labour’s] trash-talking the economy and attacks on business… Labour was warned”.
“With Christmas over, we are looking at a cold January of discontent — and this Government still just don’t get it,” he added.
Labour’s gloomy take on the economy and their predecessors’ heavy economic inheritance weighed on sentiment last Autumn, with the Institute of Directors’ economic confidence index dropping consistently in the latter half of last year.
S&P’s data, which polled 650 services companies, showed they were still cautious about the outlook for business activity in 2025, with sentiment unchanged from the 23-month low recorded in November.
Tim Moore, Economics Director at S&P Global Market Intelligence, said: “Survey respondents suggested that falling business and consumer confidence, largely due to worries about domestic economic prospects in 2025, had led to a considerable loss of growth momentum.”
Moore noted that “pockets of growth” remained in areas like technology services.
He said that the impact of higher payroll costs, plus a “general unease about the climate for business investment”, were the “main factors” weighing on prospects for growth.
